Examining Motivational Factors that Influence the ...
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EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 1
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD
by
SamuelRoebuck
ASeniorHonorsProjectPresentedtothe
HonorsCollege
EastCarolinaUniversity
InPartialFulfillmentofthe
Requirementsfor
GraduationwithHonors
by
SamuelRoebuck
Greenville,NC
May2016
Approvedby:
LindaA.Quick,PhD,CPA
Accounting,CollegeofBusiness
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 2
ExaminingMotivationalFactorsthatInfluencetheLikelihoodofFraud
Abstract
InpartialfulfillmentofmyundergraduateHonorsCollegerequirements,Ihaveconductedthe
researchstudydescribedinthispaperinvestigatingthemotivationalfactorsthatinfluencethe
likelihoodoffraud.Inrecentpast,corporateAmericahasseensomeofthelargestfraud
scandalsinhistory.Thisresearchstudyexaminedmotivationalfactors,usedasindependent
variables,money,ideology,andcoerciontoseehowparticipantsrespondedtohypothetical
scenariosinwhichtheyhadtomakeadecisiononrevenuerecognition.Bydistributingonline
surveys,Icollecteddatasupportingtheideathatideologypotentiallyisastrongermotivational
thanmoneyorcoercion.ByanalyzingandrunningteststhroughSASAnalyticalSoftware,the
datadirectionallysupportedmyhypotheses.Afterconductingfurtheranalysis,interestingfacts
showthatthoseemployeeswhohavebeenworkingforsixmonthsormorearemorelikelyto
fraudulentlyrecognizemorerevenuethanthosewhohavebeenworkinglessthansixmonths.
Thisinformationcouldleadtoseriousinsightsonhowcompaniesandauditorsshouldaddress
differentscenarios.
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 3
Introduction
InpartialfulfillmentofmyundergraduateHonorsCollegerequirements,Ihave
conductedtheresearchstudydescribedinthispaperinvestigatingthemotivationalfactorsthat
influencethelikelihoodoffraud.Inrecentpast,corporateAmericahasseensomeofthelargest
fraudscandalsinhistory.FromthepricefixingscandalthattookplaceinvolvingAmerican
ownedcompany,ArcherDanielsMidland,tothecatastrophiceventsthathappenedatEnronat
theturnofthe21stcentury,fraudhasbeenacommonaspectinthecorporateworld(Jackson,
2014).Legislation,suchastheSarbanesOxleyActof2002(SOX),andthecreationofthePublic
CompanyAccountingOversightBoard(PCAOB)havebeenenactedtohelpgovernthe
accountingindustry.Also,theAssociationofCertifiedFraudExaminers(ACFE)releasesan
annualreportthatreviewsfraudulentactivityandgivesstatisticsonthisdata.Inthe2014ACFE
ReporttotheNationsonOccupationalFraudandAbuse,atypical“fraudster”profilewasmade
basedonaglobalstudyofover1400casesinmorethan100countries(ACFE,2014).Typical
demographicsonpotentialfraudstersarebetweentheagesof31-45,menoutnumberwomen
2:1andmostfraudoccurswithintheemployeesfirst5yearsofemploymentwithacompany
(ACFE,2014).
Itispertinentforauditorsandaccountantstounderstandwhyfraudoccursinorderto
preventit.Withthisinmind,examiningandexpandingupontheFraudTriangletheoryof
accountingwillhelpaidauditorsintheirongoingstruggletopreventfraudfromoccurring.The
FraudTriangletheoryisafundamentaltheoryintheaccountingliteraturethatwasdeveloped
byDonaldCresseyandEdwinSutherlandintheearly1950’s(Dormineyetal.2012).Theideaof
theFraudTrianglewasconceivedonthreeprimarycriteriathatmustbepresentforfraudto
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 4
occur:1)apersonmustfeelperceivedpressuretocommitfraud,2)apersonmustseea
perceivedopportunitytocommitfraud,3)and,apersonmustrationalizetheirfraudulentacts
tojustifytheiractions(Dormineyetal.2012).WolfeandHermansonexpandeduponthefraud
triangleandconductedresearchshowinganewelementthatcouldinfluencethelikelihoodfor
fraudtooccurwhichiscapability.Capabilityisapersonhaving“thenecessarytraitsand
abilities”toexecutethefraudulentactsuccessfully(WolfeandHermanson,2004).Wolfeand
Hermansonexplainsixcomponentsofapersonthathasthecapabilitytocommitfraud.First,a
personintheorganizationwithhighpositionorentitlementhastheabilitytobypassinternal
controlandusecoerciveactstoinfluencefraud.Forexample,aCEOorCFOmayhavethe
abilitytoinfluencedecisionsoverwhencontractstakeeffect(WolfeandHermanson,2004).
Thiscoerciveactmayimpactthetimingofrecognitionofexpensesorrevenues.Delayingorfast
trackingacontracttofraudulentlyalterthefinancialsofacompanyisanexampleofbypassing
internalcontrolgoalsthatarerequiredunderSection404oftheSarbanesOxleyActof2002.
Someonewhohastheintelligencetoabuseinternalcontrolsisanothercomponentinthe
capabilityelement.Intelligencediffersfromthatofanegotisticorarrogantperson.An
intelligentpersondoesn’tnecessarilyhavetobeanegoisttobecapableofcommittingfraud.
Aslongasthepotentialfraudsterisknowledgeableandexperiencedwiththecontrolsand
weaknesseswithinanorganizationtheyarecompletelycapableofcommittingfraud.Thisleads
ustothenextpointinthecapabilityelementthatWolfeandHermansonillustrateintheir
research.Anegotisticandarrogantpersonalsohasthecapabilitytocommitfraud.Thistypeof
personbelievestheyaresmarterthantheauditingcontrolandcouldworktheirwayoutof
troubleiftheyweretogetcaught.Egoisacontrolledfactorthatwillplayaroleinmyresearch.
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 5
Next,someonewhoisaneffectiveliarandcankeeptrackoftheirliesisavitalcomponentto
capability.Finally,apersonwiththecapabilitytocommitfraudmustbeabletotoleratestress
verywell.Whencommittingfraud,whichcouldleadtocriminalpunishment,apersonmustbe
abletodealwithimmenseamountofstresstheywillgothroughwhencommittingfraud.
WithintheperceivedpressureportionoftheFraudTriangle,anewacronym,MICE,has
beendeveloped.Theacronymisabasisofmotivationalfactorsthatwillincreasethelikelihood
forfraudtooccur.Theacronymisbrokenupasfollows:(M)isformoney,(I)isforideology,(C)
isforcoercion,and(E)isforegoorentitlement.Historically,moneyandegohavebeenseenas
keymotivatorsforfraud,buttheoreticaldiscussionpieces(e.g.Dormineyetal.2012)suggest
thatadditionalmotivatorsmayexist.Timeandtimeagain,wehaveseenfraudcasesthateither
areduetosomemonetizedincentiveortheego/entitlementthatthepotentialfraudster
possessesaboutthem.InDecemberof2008,thewholeworldlearnedaboutamanbythe
nameofBernieMadoff.Mr.Madoff,OwnerofBernardL.MadoffInvestmentSecuritesLLC,was
exposedinaPonzischemethatcostinvestorsupwardsof$65billion(Yang2014).Mr.Madoff’s
Ponzischemepromisedhighreturnsoninvestmentsforitsclientstoencourageinvestors.Ponzi
schemesaredrivenbyamotivatedindividualthatusesnewmoneyfromincominginvestments
topayoffthepromisedreturnsofolderinvestments(Yang2014).Theresidualamountthatis
leftoveristhentakenaspureprofitforthemotivatedindividual.InthecaseofBernieMadoff,
investorsmadeaclaimforapproximately$7billioninreturnswhentherewasonlyaround
$200to$300milliontogive(Yang2014).Thisisaclearcaseinwhichmoney(M)hadinfluenced
Madofftotaketheinvestorsmoneyforhimselfandcommitafraudthatwouldlandhima150-
yearsentenceinprison(Yang2014).Anothermajorfraud,whichoccurredinthemid-1990’s,
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 6
involvedArcherDanielsMidland(ADM).ADMisthenationslargestproducerofagricultural
commodities(HenkoffandRao,1995).Withthehelpofinformant,MarkWhitacre,theFBI
uncoveredperhapsthelargestpricefixingscandal,involvingmultiplecompaniesworldwide,in
history.MarkWhitacrewastheyoungestexecutivetoworkatADMandwasintroducedtothe
pricefixingscandalin1992(HenkoffandRao,1995).Mr.Whitacrehasbeendescribedasa
“prodigiousworkaholicwithazestforhisjob”(HenkoffandRao,1995,p.64).Hereveledina
lavishlifestyleowningaverylargehometoaccommodatehissmallcarcollectionandproviding
hisfamilywithnothingbutthebest(HenkoffandRao,1995).InapersonalinterviewIhadwith
Mr.Whitacre,Igottohearhisfirsttakeonthescandalitselfandhismotiveforengaginginsuch
anact.IaskedMr.Whitacrewhetherornothisegoorentitlementplayedaspecificrolein
gettingonboardwiththepricefixingscandalatADM.IconcludedfromMr.Whitacrethathis
egoandentitlementplayedamassiveroleinthefraud.Hetoldmethatafterallofthelong
hoursofstudyingandsimultaneouslyreceivinghisundergraduateandgraduatedegreesfrom
OhioStateUniversityandlaterreceivinghisdoctoratedegreefromCornellUniversity,hefelt
thateverythinghewasreceivingwaswelldeserved(M.Whitacre,personalcommunication,
June6,2015).Hewassoaccustomedtothisnewlifestylethathisegoandentitlement
overcamehimandhisethics.Ideologyisafactorthatfocusesonpeople’sbeliefsand
perceptiononthings.Forexample,apersonmaybeinfluencedtoreportfraudulentrecordsto
meetacertaingoalsothatlowerlevelemployeeswillnotbelaidoff.Coercionistheinfluence
upper-levelmanagementhasonanemployeetocommitfraud.Forexample,aCEOcould
negativelyinfluenceamanagerorcontrollertoengageinfraudulentreportingorelsetheywill
befiredimmediatelyandpotentiallyblacklistedfromanyotherpotentialjobs.
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 7
Thepurposeofthisstudyistohelpprovideinsighttomotivationalfactorsbesides
money,whichincreasethelikelihoodforfraudtooccur.Basedonaccountingliterature,forthe
typeofstudyIplantoconduct,MBAstudentsare“entirelyappropriateinstudies”duetothe
factthey“havesomeaccountingknowledgeandinvestingexperience”(Libbeyetal.2002).By
usingMBAstudentsasproxiesformanagers,Icangaininsighttothebehaviorofactual
managers.Basedonmyfindings,furtherresearchcouldinvestigatehowmanagersandauditors
couldpreventthesetypesoffraudfromoccurring.
Inthisstudy,Iamgoingtoprimarilyfocusontheideologyandcoercionfactorsofthe
MICEacronym.Whileleavingthemoneyfactorasacontrolformyexperiment,itwillprovidea
basistocompareresultsfromideologyandcoercionfactors.Withthesemotivationalfactorsas
theprimaryfocus,Iexpecttofindstrongresultsastowhatinfluencesfraud,whichcanleadto
researchonhowtobetterpreventthesekindsofactsfromhappeninginthefuture.The
purposeofthisstudyistohelpprovideinsighttomotivationalfactorsbesidesmoney,which
increasethelikelihoodforfraudtooccur.Basedonaccountingliterature,forthetypeofstudyI
plantoconduct,MBAstudentsare“entirelyappropriateinstudies”duetothefactthey“have
someaccountingknowledgeandinvestingexperience”(Libbeyetal.2002).ByusingMBA
studentsasproxiesformanagers,Icangaininsighttothebehaviorofactualmanagers.Based
onmyfindings,furtherresearchcouldinvestigatehowmanagersandauditorscouldprevent
thesetypesoffraudfromoccurring.
Background
TheFraudTriangleisafoundationaltheoryusedinauditingtoexaminewhite-collar
crimessuchasembezzlement.DonaldCresseyandhismentor,EdwinSutherland,developed
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 8
theFraudTriangleintheearly1950’s(Dormineyetal.2012).ThehypothesisthatCressey
createdstatedthatforfraudtooccur,perceivedpressure,perceivedopportunity,and
rationalizationmustbepresent(Dormineyetal.2012).Pressurecanarisefromanumberof
differentreasons.Dormineyandhiscolleagueslookatpressureunderafinancialstandpoint.A
personcouldbeexperiencingfinancialstruggles,whichtheydon’tfeelliketheycouldspeakto
anyoneabout(Dormineyetal.,2012).Thiscreatesthemotiveorthepressureforoneto
commitfraud.Oncepressurehasbeenestablished,thepotentialfraudsterseeksoutan
opportunity.Onemightnoticeaweaknessofinternalcontrolortheycouldpotentiallyhave
accesstoconfidentialdata,suchaspayroll.Afterthepotentialfraudsterhasrecognizedthis
opportunity,theymakesurethechanceofbeingcaughtisslim(Dormineyetal.2012).Afterthe
fraudhasoccurred,thefraudstermovestotherationalizationprocess.Ultimately,thefraudster
beginstojustifytheiractionsandcalmhimorherselfdownbythinkingthattheyaresafeand
thatnooneisgoingtofindout(Dormineyetal.2012).Forinstance,afraudstercouldlookback
ontheirfraudandthink“Ineededthismoneymuchmorethanthiscompanydoes,noonewill
noticethat$XXXXismissinganyhow,Iwillbefine.”
Recently,researchhasbeenconductedtoexpandthefraudtriangleandfocuson
differentaspectsofthetriangle.Thistypeofresearchincludeshowdifferentmotivators,
controls,orenvironmentstriggerfraudtooccur.Specificallyinthe“perceivedpressure”aspect
ofthefraudtriangle,anewacronymisusedtoappropriatelyidentifydifferentmotivatorsfor
fraudoffenders(Dormineyetal.2010).SuggestedbyProfessorJasonThomas,theacronym
MICEstandsformoney,ideology,coercion,andego/entitlement(Dormineyetal.2010).MICE
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 9
focusesonthefourdifferentmotivatorsandhowtheyinfluencefraudsterstoengageintheact
ofcommittingfraud.
Typically,moneyandegoarethemostcommonmotivationsthatinfluencethe
likelihoodforfraudtooccur(Dormineyetal.2012).ThemoneyaspectoftheMICEacronym
dealswithfinancialincentives.Whenemployeesarefacedwiththeopportunitytoobtainextra
money,itmakescommittingfraudsoundabitmoreappealing.Ideologyisalessfrequent
motivatorthatinfluencesfraud.Theideologymotivationalfactorisderivedfromtheideasand
valuesthatthepotentialfraudsterbelievesin.Forinstance,specificallycitedbyDormineyand
hiscolleaguesin“TheEvolutionofFraudTheory,”anideologicalmotivatormayconstitute
someonewhoisevadingtaxesbecausetheybelievethatthey“payenoughtaxes”or“the
governmentdoesn’tdeservetheirmoney”(Dormineyetal.2012,p.563).Coercionisabased
onsituationsinwhichupperlevelmanagementisheavilyinfluencingemployeestocommit
fraud.Theemployeecouldalsobenefitfromthefraudulentactfinancially,orconversely,their
jobcouldbejeopardized.Forexample,ascenariowhereaCEOpromisesaninternalauditora
largestipendforfalsifyingrecordsinordertoavoidinterferencefromanexternalauditing
groupwouldbeatypeofcoercion.Finally,theego/entitlementportionoftheMICEacronymis
builtupontheself-perceptiononehas.Ifapotentialfraudsterbelievesthattheyare
“untouchable”or“toogood”tobequestioned,thiscouldleadtopotentialactsoffraud.
Dormineyandhiscolleagueselaborateontheego/entitlementportionoftheMICEacronym
(Dormineyetal2012).
Theyclassifytwokindsofegosasthe“predator”andthe“accidentalfraudster.”
Respectively,onecanintentionallycommitfraudulentactsor,attheotherendofthespectrum,
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 10
onecanaccidentallycommitanactoffraud.Toelaborate,theaccidentalfraudsteristypically
viewedasanupstandingcitizenthatislikedbymanyandnoonewouldexpectthispersonto
beapotentialfraudster(Dormineyetal.2012).Contrarily,thepredatoristobeseenas
someonewhoislikelytocommitfraud.Theyarequestionableintermsoftheirethicalityand
moralityanditwouldnotbeasurpriseifthispersonwouldbeconvictedofafraud(Dorminey
etal.2012).Bearingthisaccountingliteratureinmind,thisledmetothequestionsIintendto
lookatandthedevelopmentofmyhypotheses.
TheoryandHypothesisDevelopment
Ideologyandcoercionarethefocalpointsofthisresearchstudy;therefore,itisimportant
tounderstandhowthesemotivationalfactorshavebeenexaminedinpreviousaccounting
literature.DoneganandGanon(2008)haveconductedresearchonfactorsthatcause
accountingtransgressionbasedoncriminologyliterature.Basedontheirresearchandthe
criminologyliteratureviewofcoercion,theyhaveconcludedthatcoercionis“theprimary
socialforceleadingtothecommissionofcrimes”(Donegan&Ganon,2008,p.8).Coercionhas
beenseeninanumberofdifferentcasesintherecenthistoryincludingtheactsthattookplace
atWorldCominvolvingBettyVinson.In1997,Mrs.Vinsonwastoldtoreachintoareserve
accounttocoverahugeamountofcostsandboostearnings(Pulliam,2003).Mrs.Vinsonand
otherstaffaccountantsinformedthehigher-levelmanagersoftheimproperaccountingbut
werestilltoldtodoso.Thisledtooneofthebiggestfinancialfraudsandultimatelytheendof
WorldCom.
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 11
Oneofthelessfrequentmotivationalfactorsforfraudtooccurhasbeenideology.As
previouslymentioned,Ihavelookedatdifferentinstanceswheremoney,coercionand
ego/entitlementhavealldrivenpeopletoengageinfraudulentactivity.Ideologyfocuseson
onesbeliefsandmorals.Whatapersonbelievesincouldinfluencethemtocommitfraud.
Dormineyandhiscolleaguesviewideologicalfraudassomeonewhoiscommittingafraudto
“achievesomeperceivedgreatergood”(Dormineyetal.2012,p.563).
WhileIhaveexaminedpreviousresearchthathasshownsomeofthesemotivational
factorsasthereasonforfraudtooccur,therehasbeennoresearchthathasindependently
focusedonthesedifferentmotivesandtheinfluencetheyplayonindividuals.Thisledtothe
developmentofthegoalandresearchquestionsIintendtofocuson.Thegoalofmyresearch
projectistoconductanexperimentonfraudandtheMICEacronympertainingtofraud.My
researchwillinvestigatethefollowingquestions:
1. HowwillMBAstudents(usedasproxiesformanagers)respondtodifferentmotivational
factorsoftheMICEacronym?
2. Arethereenvironmentalfactors,otherthanmoney(M),thatwillincreasethelikelihood
ofanindividualcommittingfraud?
a. Istheideologicalgoal(I)ofhelpingothersoutforlittleornopersonalfinancial
benefitanappealingreasontocommitfraud?
b. Arecoerciveacts(C)byupperlevelmanagementanappealingreasontocommit
fraud?
Bearingthesequestionsinmindandcurrentaccountingliterature,thisledtothedevelopment
ofthreedifferenthypotheses.Inmyscenarios,recognizingmorerevenuecanbeseenas
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 12
behavinginafraudulentmanner(e.g.,acceleratingrevenuerecognitionbeforethetermsofthe
contracthavebeenmet).
Therehavebeensomerecentchangesdealingwithemployeeprotectionfrom
employers.Employeesundercoercivepressurefromhigher-levelmanagershavemultiple
resourcestohelpthemreportthiscoerciontoindividualsinapositiontohelp.With
implementationslikethewhistleblowerhotline,createdfromtheSarbanesOxleyactof2002,
andotheractssuchastheWhistleblowerProtectionEnhancementactof2012,employeeshave
morereasontofeelsafeagainstactsofcoercion.Basedonthis,Ipredictthatwhenfacedwith
themotivationalfactorofcoercion,MBAstudentswillbeleastliketorecognizemorerevenue.
Thisleadstothefirsttestablehypothesis:
Hypothesis1:Participantswillbeleastlikelytorecognizemorerevenuewhena
coercionfactorisbeingexhibitedinthescenarios.
Whenaparticipantisleftwithroomforinterpretation,thiscouldhighlyinfluencethe
participant’sdecisioninwhetherornottheywillcommitfraud.Thisleadstomynext
hypothesis,Ibelievethatwhenaparticipantisfacedwithascenariothatcouldleaveroomfor
interpretationorasituationthatismoreflexibletheywillbemoreapttocommitfraud.
Hypothesis2:Participantswillbemorelikelytorecognizemorerevenuewhenthe
scenarioleavesroomforinterpretation.
Aswehaveseenwithpreviousliterature,mostfraudschemesincludeafactorofmoney,
coercion,orego/entitlement.However,Ipredictthatparticipantsthatareexposedtoscenarios
includingideologicalfactorswillbethemostlikelytorecognizemorerevenue.Ideologyisaless
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 13
frequentmotivationalfactorforfinancialfraudwhencomparedtoelementssuchasmoney,
coercion,orego.However,whenusingMBAstudentsasproxiesformanagers,Ipredictthat
theywillbeknowledgeableabouttheoutletstheyhaveforreportingcoercionwhentheyare
beingcoerced,andwillhavemoreofareactiontoanideologyfactor.Ipredictthatwhen
peopleareputinaplaceinwhichtheyaregoingtofeelsympathyandempathy,thiswillmake
therationalizationprocessmucheasierthanthatofbeingcoercedintocommittingfinancial
fraud.
Hypothesis3:Participantswillbemostlikelytorecognizemorerevenuewhenan
ideologicalfactorisbeingexhibitedinthescenarios.
Methodology
Mystudyusesa3x2between-groupdesign.The3x2betweengroupdesignswillbe
madeupbyatotalofsixdifferenthypotheticalscenarios.Thethreemotivationalfactorsthat
arebeinginvestigatedaremoney,ideologyandcoercion.Witheachofthesethreemotivational
factorstherewillbetwoversionsofthescenario.Oneversionofthescenariowillleadthe
participanttoaveryconcretedecision.Basedontheinformationgiventheyshouldbeableto
makeachoicefairlyquickly.Ontheotherhand,theotherscenariowillleavetheparticipant
withroomforinterpretation.Whentheyaretoldthatthemajorityofthecontractual
agreementwillbegivenonthefirstoftwelvefertilizertreatments,thiswillleavesome
speculationfortheparticipant.Thepremiseforthesescenariosisbasedonahypothetical
situationinwhichtheparticipantsareplacedinamanagerialroleofpreparingfinancial
statementsforamidsizeagriculturalcompany.Inthescenarios,theparticipantsaregoingtobe
exposedtoadifferentmotivationalfactor,whichcouldimpacttheirdecisiononimproperly
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 14
recognizingrevenue.ThetestinstrumentwasadministeredthroughQualtricsdirectlytoMBA
studentsthatareattendingalargepublicuniversity.Participantshadtwowaysofcompleting
theinstrument:onahardcopyinclassoronanelectroniccopyonlineatthediscretionofthe
MBAinstructor.Acasestudywasdevelopedinwhichahypotheticalscenarioispresentedand
willincludeourmanipulationsofourindependentsvariablesrelatedtoideologyandcoercion.
ByusingaLikertScale,ImeasuredresponsesthataregivenbytheMBAparticipants.These
responsesarerelatedtothelikelihoodofcommittingfraud,whichservedasourdependent
variable.Afterthedependentmeasure,open-endedquestionswereaskedtodeterminewhat
influencedtheirdecisions.Tocombatsocialdesirabilitybias,Iaskedinfirst-person,whatthe
participantwoulddo,andinthird-person,whattheparticipantthinkstheaverageperson
woulddo.Attheendinstrument,Iincludedamanipulationchecktoensurethatparticipants
attendedtothemanipulationpresentedtothem.Also,byaskingdemographicalquestionsI
gainbackgroundinformationontheparticipants.
DataAnalysis
AfteradministeringthesurveyelectronicallyviaQualtrics,Igathered78completed
responsestobeusedforanalysis.Afterexportingthegathereddata,thedatawaspreparedina
SASfriendlyformattoruntestsondifferentmotivationalfactorsandwhetherornottherewas
anysignificancetotheresults.Thefirstteststhatwererunfocusedontheimpactofthe
independentvariablesontheparticipant’sdecision-making.AsshownbelowinTable1,the
independentvariables,MOTIVandAMBIG,aretestedindependently,andthenagaintheyare
testedtogether.TheindependentvariableMOTIV,focusedontheactualmotivationalfactors
(Money,Ideology,andCoercion)thattheparticipantswereexposedtointheirsurveys.The
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 15
independentvariableAMBIG,focusedontheelementofambiguitythatparticipantswere
Exposedtointheirsurvey.Thisambiguitycomesfromthefactthatsomeparticipantswereleft
withroomforinterpretationontheirsurveys.Finally,atestwasrunlookingatbothofthese
independentvariablestogether.
Table1:MOTIV,AMBIG&MOTIV*AMBIG
Basedontheseresults,thereisstrongsupportingdatathatprovidesstatistical
significanceineachofthesecategories.LookingatthePr>Fcolumn,wecanseethateachof
thesetestshasvalueslessthan0.05,indicatingstatisticalsignificance.Withthatbeingsaid,
theseresultsdidnothappenmerelybychancebutratherthereisalinktoourparticipant’s
responsesandthelikelihoodoffraud.ShownbelowinTable2istheaveragedollaramountof
eachscenariofortheresponsesthatwerecollected.Byexaminingthisdata,Ihavefoundsome
directionalsupportformyhypotheses.Forexample,whenparticipantswerefacedwith
coercionandambiguousscenarios,asopposedtomoney/ambiguousandideology/ambiguous,
theywereleastlikelytofraudulentlyrecognizerevenueaswecanseebythe$387,500.00in
Table2.Thisdirectionallysupportshypothesisonethatstatesthatparticipantswillbeleast
likelytorecognizemorerevenuewhenacoercionfactorisbeingexhibitedinthescenarios.
Hypothesistwoshowsmoderatedirectionalsupport.Comparingmoneywithambiguityand
Source DF Type III SS Mean Square F Value Pr > F
MOTIV 2 5.29606E+11 2.64803E+11 201.42 0.0006
AMBIG 1 2.06069E+11 2.06069E+11 156.74 0.0011
MOTIV*AMBIG 1 2.02929E+11 2.02929E+11 154.35 0.0011
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 16
moneywithoutambiguity,thereisaquitealargedifference.Whenparticipantswerefaced
withscenariosinvolvingmoneyandambiguitytheaverageresponsetotaled$783,363.60,as
opposedtoparticipantswhoencounteredscenariosinvolvingmoneywithnoambiguity,which
totaledto$457,089.00.Basedonaccountingliterature,ideologyisalessfrequentmotivational
factorforfraudtooccur.Interestinglyenough,participantsthatwerefacedwithanideological
scenariowithnoambiguityrecognizedmorerevenuethanthoseparticipantsthatwerefaced
withmoneyandcoercionscenarioswithoutambiguity.Thisdirectlysupportshypothesisthree
whichstatesthatparticipantswillbemostlikelytorecognizemorerevenuewhenan
ideologicalfactorisbeingexhibitedinthescenarios.
Table2:AveragesofEachScenario
Thenexttestsfocusedonparticipantsworkexperience.AfterrunningthedatainSAS,
wefoundinterestingdatathatlinkedthelikelihoodofparticipantsworkexperienceandfraud.
TheresultscanbeseenbelowinTable3.Theseresultsarestunninginthefactthattheyare
highlysignificant.LookingatWORKEXPRandACCTWORK,thePr>Fvaluesequatedto0.0005
and0.0008,respectively.Bearinginmindthatthisresearchstudyisbasedonone-tailed
hypotheses,thisisextraordinary.
Money-Ambiguity
Coercion-Ambiguity
Ideology-Ambiguity
Money-NoAmbiguity
Coercion-NoAmbiguity
Ideology-NoAmbiguity
$786,363.60
$387,500.00
$404,546.00
$457,089.00
$387,500.00
$663,076.90
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 17
Table3:WORKEXPR&ACCTWORK
Afterfindingtheseresults,Icomparedthedatagatheredbetweenthosewhohadsixor
moremonthsofaccountingworkexperiencetothosewithlittletonoaccountingwork
experience.Whatwefoundwhenlookingatthisdatawasquiteinteresting.Onaverage,those
whohavesixmonthsormoreofaccountingworkexperiencerecognizedapproximately
$628,537.00.Conversely,thosewithlittletonoaccountingworkexperiencerecognizedonly
$454,000.00onaverage.ThoseaveragescanbeseenbelowinTable4.Thatisalmosta
$175,000differencebetweenthetwogroupsofparticipants.Whilemyhypothesesdonot
directlyaddressthesefindings,theyarenonethelessfascinating.Theseresultscouldleadtoa
numberofdifferentavenuesforresearchandsignificantinformationforauditorsandmanagers
inassessingfraudrisks.
Participantswith6monthsormoreaccountingworkexperience
Participantswithlessthan6monthsofaccountingworkexperience
$628,537.00 $454,000.00
Conclusion
Throughthisresearch,Iexpectedtogainabetterknowledgeofwhyfraudoccursand
whattypesofscenarioscatalyzefraud.SincetheMICEacronymisfairlynewtoaccounting
Source DF Type III SS Mean Square F Value Pr > F
WORKEXPR 15 4.21E+12 2.80484E+11 213.35 0.0005
ACCTWORK 2 4.6817E+11 2.34085E+11 178.05 0.0008
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 18
literature,thisresearchisbeneficialtotheaccountingsociety.Bybetterunderstandingwhat
typesoftriggersandenvironmentalfactorsplayaroleinapotentialfraudster’shead,wecan
takeactiontohelppreventthisfromhappening.Lookingathowparticipantsrespondedto
theseindividualscenarioscanhelpauditorsandpreparersbettersafeguardonthesesinstances
offraud.Basedonmyknowledgeoftheaccountingliteratureandanalyzingthegathered
results,Iwouldsaythattherearedefinitesignsthatmoneyandcoercionarenottheonlymajor
playersinmotivationalfactorsforfraud.Withstatisticalsignificance,auditorscanlookintothis
researchandseethatnotonlymoneyoregoplaymajorrolesinfraudbutideologycould
potentiallybecomeamajormotivationalfactorforfraud.Afterlookingattheresultscomparing
thetwocategoriesofparticipantsbasedonworkexperience,auditorsandmanagementcan
takeintoaccounttheserisks.PertheACFE,weestablishedthatmostemployeeswhocommit
fraudarewithintheirfirstfiveyearsofworkingwithacompany(ACFE,2014).Thisleadsto
manyunansweredquestionswithinbusinessorganizationsandcouldleadtopotential
developmentofnewstandardsettingforpubliccompanies.Someoftheunansweredquestions
include:Howshouldacompanyaddresstherisksthatareassociatedwiththeseemployees?Is
thecompanyatfaultfornotrequiringanethicstraining?Shouldanethicscourseberequiredin
highereducationbeforeemployeesentertheworkforce?Isthisamatterofweakinternal
controlsoristhisatrendthatisimpactingindustriesacrossAmerica?Nomatterwhatthe
questionsthatmayariseare,thisresearchstudyhasuncoveredpotentialfraudthreatsat
multiplelevels.Thestatisticalsignificanceshowsthatthisdidn’tsimplyhappenasacoincidence
buttheredefinitelyisanissuethatneedstobeaddressed.
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 19
References:
AssociationofCertifiedFraudExaminers(ACFE).2014.ReporttotheNationonOccupational
FraudandAbuse.Austin,TX:ACFE
DoneganJ.,&Ganon,M.(2008).Strain,DifferentialAssociation,andCoercion:Insightsfromthe
CriminologyLiteratureonCausesofAccountant'sMisconduct.AccountingandthePublic
Interest,1-20.
Dorminey,J.,Fleming,A.,Kranacher,M.,&RileyJr.,R.A.(2012).TheEvolutionofFraud
Theory.IssuesInAccountingEducation,27(2),555-579.
Dorminey,J.W.,Fleming,A.,Kranacher,M.,&RileyJr.,R.A.(2010).BeyondtheFraudTriangle.
(coverstory).CPAJournal,80(7),16-23.
Henkoff,R.,&Rao,R.M.(1995).SOWHOISTHISMarkWhitacre,ANDWHYISHESAYING
THESETHINGSABOUTADM?(coverstory).Fortune,132(5),64-68.
Jackson,R.A.(2014).WhenExecutivesGoBad.InternalAuditor,71(5),30-36.
Libby,R.,Bloomfield,R.,&Nelson,M.W.(2002).Experimentalresearchinfinancial
accounting.Accounting,Organizations&Society,27(8),775-810.
Pulliam,S.(2003).Overtheline:AStafferOrderedtoCommitFraudBalked,thenCaved---
PushedbyWorldComBosses,accountantBettyVinsonHelpedCooktheBooks---A
ConfessionattheMarriott.WallStreetJournal.Availableonlineat:
http://www.wsj.com/articles/SB105631811322355600
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 20
Wolfe,D.T.,&Hermanson,D.R.(2004).TheFraudDiamond:ConsideringtheFourElementsof
Fraud.CPAJournal,74(12),38-42.
Yang,S.(2014).5YearsAgoBernieMadoffWasSentencedto150YearsInPrison–Here'sHow
HisSchemeWorked.BusinessInsider.Availableonlineat:
http://www.businessinsider.com/how-bernie-madoffs-ponzi-scheme-worked-2014-7
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 21
Appendix:
Introduction
Thankyouforparticipatinginthisexperiment.Thepurposeofthisexperimentistoexamine
howindividualsmakedecisionsbasedonvariousfinancialreportingscenarios.Listedinthistest
instrumentaredifferentscenarios.Afteranalyzingeachscenario,pleaserespondtoeachof
thesecasesusingtheprovidedscale.Eachofthesescenariosarecompletelyfictionaland
hypothetical.
Therearenoincorrectresponsestothesescenariosandyourresponseswillremain
anonymous.Yourparticipationiscompletelyvoluntary.Byadvancingtothenextpage,youare
indicatingyouragreementtoparticipateinthisstudy.Afterrespondingtoeachofthe
scenarios,youwillbeaskedtoanswersomebasicbackgroundquestions.
Again,thankyouforyourparticipationandifyouwouldliketoreceiveasummaryofthe
results,pleasecontactmeviaemailatxxxxxxxxxxxxxxxxxx.
Sincerely,
xxxxxxxxxx
AccountingBSBA
HonorsCollegec/o2016
Underthedirectionof:
xxxxxxxxxxxxxx
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 22
Eachparticipantwillreceiveoneofthefollowingsixscenarios!
Youareanemployeeatamediumsizedcompany(100-300employees)thatspecializesin
agriculturalproductsandtechnology.Yourbiggestresponsibilityistopreparequarterlyand
annualfinancialstatementsforupperlevelmanagementandboardmembers.
Afterbeinganemployeeforthiscompanyforapproximatelyfiveyears,youhavenoticedthatit
isn’tuncommonforyourupperlevelmanagerstosetsteepgoals.Duetoeconomicfactorsand
otheroutsideimpacts,theagricultureindustryhasbeenreallystrugglingduringitsbusiest
quarter(April-June).Thecompanyhassetanintendedrevenuetargetof$6.75milliondollars
forthequarter.
AmbiguousContract
A$1.2millionnon-cancellablecontractualagreementwasmadebetweentheagricultural
companyandafarmingoperationonApril1,2015tospreadfertilizeron12separateoccasions
betweenApril1,2015andMarch31,2017.TheinitialapplicationoffertilizeronApril1,2015
providesthemajorityofthebenefittothefarmingoperation;subsequentapplicationsof
fertilizermaintainand/orenhancetheoriginalapplication.RefertoFASBCodification2014-09
(shownbelow).
NoAmbiguityContract
A$1.2millionnon-cancellablecontractualagreementwasmadebetweentheagricultural
companyandafarmingoperationonApril1,2015tospreadfertilizeron12separateoccasions
betweenApril1,2015andMarch31,2017.RefertoFASBCodification2014-09(shownbelow)
forrecognitionamendments.
Money
Byrecognizing$1.2millioninrevenueduringQ2(quartertwo)ofthefiscalyear,yourcompany
willsurpasstherevenuetargetandyouwillwalkawaywitha$52,000bonusattheendofyear.
Youarequicklyapproachingtheendofthereportingperiodandyouneedtomakeadecision.
Ideology
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 23
Thecompanyisreallytryingtohititsintendedrevenuetarget.Whiletherearenodirect
consequencestoyourcompensationoremploymentbycomingupalittlebitshort,missingthe
revenuetargetwilllikelyleadtoseverallayoffsoflowerlevelemployeeswithinthecompany.
Yourecognizethedifficultytheseemployeeswouldfaceiftheywerelaidoff,astherearefew
availablejobsinthisindustry,andmanyofthelowerlevelemployeeshavefamiliestosupport
withtheirincome.Theendofthereportingperiodiscomingupandyouneedtomakea
decision.
Coercion
Oneafternoon,youdecidedtostaylatetocatchuponsomework.TheCEOofthecompany
approachesyourdeskandbeginstotalkwithyou.Afterverybrieftalk,theCEOmadeit
apparentthathewantstherevenuetoberecognizedfullinQ2.Hementionstoyouhow
importantitistokeepajobinsuchacompetitiveindustryandhowhehasalotofconnections
withsimilarbusinesses.Theconversationmakesyouquestionyourjobsecurityandmakesyou
believeyouwillbefiredandblacklistedifyoudonotrecognizethisrevenueandmeetthe
target.Theendofthereportingperiodiscomingupandyouneedtomakeadecision.
YourTask:Basedontheinformationprovidedabove,youaretoanalyzethesituationand
respondtothebestofyourability.Somepertinentinformationaboutthiscompanyincludes:
1. Thecompanyhasmeteveryrevenuegoalsetsince2010.
2. Thecompanyisthemostsuccessfulagriculturalcompanyinthesoutheastregion
oftheUnitedStates.
PleaseindicatehowmuchrevenueyouwillrecognizeattheendofQ22015
$
Withtheinformationprovided,respondtoeachofthefollowingLikertScales.
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 24
PAGEBREAK!
Howstrongofaninfluencewouldthe(compensationpackage,concernoffamilies,coercive
chat)playinyourdecisionofhowmuchrevenuetorecognizeduringthecurrentreporting
period?
Didnotinfluencemydecisionatall
1 2 3 4 5Stronglyinfluencedmydecision
Howstrongofaninfluencedoyouthinkthe(compensationpackage,concernoffamilies,
coercivechat)wouldplayontheaveragepersonmakingthedecisionofhowmuchrevenueto
recognizeduringthecurrentreportingperiod?
Wouldnotinfluencedecisionatall
1 2 3 4 5Wouldstronglyinfluenceddecision
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 25
FASBNo.2014-09
{Providedtoallparticipants;availableastheyrespondedtodependentvariablequestions}
Thecoreprincipleoftheguidanceisthatanentityshouldrecognizerevenuetodepictthetransferofpromisedgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.Toachievethatcoreprinciple,anentityshouldapplythefollowingsteps:
Step1:Identifythecontract(s)withacustomer.
Step2:Identifytheperformanceobligationsinthecontract.
Step3:Determinethetransactionprice.
Step4:Allocatethetransactionpricetotheperformanceobligationsinthecontract.
Step5:Recognizerevenuewhen(oras)theentitysatisfiesaperformanceobligation.
[Assumesteps1-4havealreadybeencompletedfortheabovecontract.]
Step5:RecognizeRevenueWhen(orAs)theEntitySatisfiesaPerformanceObligation
Anentityshouldrecognizerevenuewhen(oras)itsatisfiesaperformanceobligationbytransferringapromisedgoodorservicetoacustomer.Agoodorserviceistransferredwhen(oras)thecustomerobtainscontrolofthatgoodorservice.
Foreachperformanceobligation,anentityshoulddeterminewhethertheentitysatisfiestheperformanceobligationovertimebytransferringcontrolofagoodorserviceovertime.Ifanentitydoesnotsatisfyaperformanceobligationovertime,theperformanceobligationissatisfiedatapointintime.
Anentitytransferscontrolofagoodorserviceovertimeand,therefore,satisfiesaperformanceobligationandrecognizesrevenueovertimeifoneofthefollowingcriteriaismet:
1.Thecustomersimultaneouslyreceivesandconsumesthebenefitsprovidedbytheentity’sperformanceastheentityperforms.
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 26
2.Theentity’sperformancecreatesorenhancesanasset(forexample,workinprocess)thatthecustomercontrolsastheassetiscreatedorenhanced.
3.Theentity’sperformancedoesnotcreateanassetwithanalternativeusetotheentity,andtheentityhasanenforceablerighttopaymentforperformancecompletedtodate.
EXAMININGMOTIVATIONALFACTORSTHATINFLUENCETHELIKELIHOODOFFRAUD 27
DemographicQuestions
1. Imaginethatyouhaveachoicebetweentwoseparateoptionsthatareshownbelow.Basedonyouropinion,pleasechoosewhichoptionyouwouldprefer.
a. 0.1%chanceofwinning$10,000anda99.9%chanceofwinning$0.b. 100%chanceofwinning$10.
2. Imaginethatyouhaveachoicebetweentwoseparateoptionsthatareshownbelow.
Basedonyouropinion,pleasechoosewhichoptionyouwouldprefer.a. 0.1%chanceoflosing$10,000and99.9%chanceoflosing$0.b. 100%chanceoflosing$10.
3. Pleaseindicatebelowwhichgraduatecoursesyouhavecompleted
{Courselistingisprovidedforparticipantstochoosecompletedcourses}
4. Approximatelyhowmanymonthsofaccountingworkexperiencedoyouhave?(Includinginternships)
5. IfyouranswertoQuestion4ismorethanzero,whatareasofaccountingdoyouhaveexperiencein?
a. Auditingb. Tax(IndividualPreparationorCorporate)c. Bookkeepingd. Other(pleasedescribe)_________________